A number of bond and fixed-income funds were downgraded by Standard & Poor's yesterday, continuing the cascade of bad news for the imploding ultra-short and LIBOR-plus fund sector. S&P says "continued market volatility" and "the latest monoline insurer downgrades" are responsible for the series of 21 fund downgrades. (No money funds were involved.)
S&P says, "The fund volatility rating changes reflect our view of the sustained volatility the funds have experienced, which has led to a monthly return distribution profile that is outside the volatility rating bands for their respective rating categories." In other words, many of the funds are showing negative returns, some shockingly large.
The S&P downgrades were as follows: BlackRock Florida Insured Municipal 2008 Term Trust Inc. (AAAf/S1 from AAAf/S3); BlackRock Insured Municipal 2008 Term Trust Inc. (AAAf/S1 from AAAf/S3); BlackRock Insured Municipal Term Trust Inc. (AAf/S2 from AAAf/S3); BlackRock Insured Municipal Term Trust Inc. (NR from AAf/S2); BlackRock New York Insured Municipal 2008 Term Trust Inc. (AAAf/S1 from AAAf/S3); Corporate Credit (Europe) (Af/S3 from Af/S2); Federated Intermediate Government Fund (AAAf/S2 from AAAf/S1); iShares S&P California Municipal Bond Fund (AA-f/S3 from AAf /S3); iShares S&P New York Municipal Bond Fund (AA-f/S3 from AA+f/S3); Pioneer Investments Euro Geldmarkt Plus (AAAf/S1 from AAAf/S1+); SPDR Lehman California Municipal Bond ETF (AAf/S3 from AA+f/S3); SPDR Lehman Municipal Bond ETF (AAf/S3 from AA+f/S3); SPDR Lehman New York Municipal Bond ETF (AAf/S3 from AA+f/S3); SPDR Lehman Short Term Municipal Bond ETF (AAf/S2 from AA+f/S2); and, Van Kampen Insured Tax Free Income Fund (A-f from Af).
Also, yesterday's Wall Street Journal carried more bad news for the ultra-short sector, saying, "Fidelity Investments is being sued over losses in the Fidelity Ultra-Short bond fund, which invested in risky mortgage-backed securities. A purported class-action lawsuit filed in U.S. District Court in Boston alleges that the Boston mutual-fund giant was 'misleading' in promoting the fund as a safe alternative to cash and that the company didn't adequately disclose risks."
